Image Courtesy of Flickr_Ishan Manjrekar

Rupees, Pounds or Dollars? The Asian Art Market in Review

Guest blog from one of our preferred valuation partners, Doerr Dallas Valuations.

Author: Laura Williams, Indian Art Specialist.

Nobody anticipated the extreme highs of the past few weeks. Particularly in what may potentially be the worst recession of our lifetime. In Mumbai, the room was devoid of clients but that did not alter the fact that the most expensive artwork by an Indian artist had just been sold. There must have been a smile underneath the masks of Dadiba & Khorshed Pundole. The owners of Pundole’s Auction House had just sold a painting by V S Gaitonde on the hammer, for just over £3.6 million pounds. Years of hard work paid off. The record had been set.

With hardly time for the world-record Gaitonde to be taken off its nail, down the road and hot on its heels, Mumbai’s other leading auction house Saffronart was putting up its remarkably similar work, again by V S Gaitonde. Celebrating twenty years of Auctioneering, the Vaziranis pulled out all the stops and without a single-owner collection had pulled together a strong selection of works by leading practitioners. The hammer at Saffronart, like an echo across the City, came down on the Gaitonde, just short of the recent record. Those used to the big-buck rooms of the International art world may give a conciliatory nod to these figures. But consider that in 2013 the same Gaitonde artwork could have been picked up for around £500k and in 1980 it may have cost a modest £500. Oh, how collectors of South-Asian art, like all aficionados, must wish for a time-machine.

For a few years the name Gaitonde has been like dangling a golden carrot in front of the noses of collectors. Equally exhilarating, at the same sale at Pundole’s was the sale price of close to £1million pounds for a work by J S Swaminathan. And it has been the same story for the past few, lockdown, months. The Insta feeds of the auction houses flash at almost the same speed as the rise of the announced prizes, declaring, ‘The highest price achieved for the artist’. The party we are invited to appears to be getting bigger and the list of names added to its celebrity artist list is expanding.

When India embraces an idea, it does so with full gusto. Particularly when it comes to investment potential. ‘I know a great street-food chef’ can transform in the blink-of-aneye into, ‘Business Woman Launches her 200th Food Truck!’ Likewise, a Zarina print can quickly morph from a £10,000 estimate into a £50,000 artwork – as seen at the recent sales. According to Rob Dean, Director of Pundole’s, ”The market may currently be inflated due to worldwide lockdowns but do I think the South-Asian art market is set to be one of the biggest markets in years to come? Yes, I do”.

You could have heard the proverbial pin drop at this week’s Sotheby’s sale of Modern and Contemporary South-Asian Art in London. Lot 40 by Indian artist Bhupen Khakhar made a dazzling £2 million pounds (inc premium) against a suggested price of £250,000 – £450,000. The wide-ranging estimate, a great pointer to the fact that even the experts are not quite sure where the star pupils sit. But the sound of the hammer sadly sounded hollow, just a few lots later, when the stunning oil on canvas, a 1969 work by the much loved V S Gaitonde, failed to sell. The story was the same earlier in the month, when a similar canvas by the same artist also failed to get off the starting block at Christies in New York. The significance of right place, right time and knowing the difference, for each artwork, is evidently crucial.

What does this tell us? The primarily domestic, South-Asian, art market is clearly happier spending its rupees than its pounds or dollars. Perhaps most encouraging, is that a discerning eye appears to be coming into play. Take a tale of two paintings by the respected artist N S Bendre. Two poor examples appeared in Sotheby’s sale, one scrapping past its low estimate of £15,000, the other fai led to sell. Whilst two canvases, of a similar size and year, strong works, sailed past their estimates to achieve around £110,000 and £148,000 each, including premium, at the Saffronart

Auction two weeks earlier in Mumbai. Let’s hope this throws the ridiculous priceper-inch calculator that dealers of South-Asian Art are so fond of, well and truly out of the window and that buyers are understanding that not every Husain is a good Husain.

So, cheers for some and commiserations for others in what appears to be a market that is at last finding its feet. But in this growing arena whilst knowledge of the current sales will be of importance to the UK Insurance industry, this rising market will also mean that many owners of artworks from South-Asia are probably significantly underinsured. Art as a commodity can be tricky. We understand the process of valuation. But it is never as simple as it seems. Finding a valuer for many can be an unknown entity or simple not top of the to do list.

It is a new part of the same old story; we buy art because we love it, for investment and often secretly for both. Artworks get passed down through families, normally with a tale to tell about how Grandpa picked up the sculpture when he was in the East.

Sometimes these are cherished pieces, often tastes differ through the generations. The painting gets put on top of the wardrobe. We have all seen the faces of the owners of such artworks on the TV, being told by the expert that it is probably worth a couple of hundreds of pounds. But not so in the South-Asian, particularly the Indian, art context.

Here the roles are reversed. Pieces thought to be worth a few pounds are often valued in the thousands and beyond.

For those expats and non-resident Indians who bought artwork on their travels, it may be worth looking up from this article and scrutinising the artwork hanging above the desk, in the same place it has been for the past thirty years. Unlike our other assets we let value hide in our homes as it is the easiest option. It is rare that those left a house in a will would take a tour, exclaim its beauty, then lock the door and walk away. Like houses, art has value. In some cases, it can even exceed the value of the wall it sits on.

To arrange a confidential review of your personal insurance including art collections, high value home building and contents, wine collections, high value performance and classic cars, please contact our Private Clients Manager, Kim Shergold, on 020 8681 4994

 

PK Partnership Budget Savings and Pensions

Things are slowly returning to normal…

As Government lockdown measures continue to ease for most sectors, we have started our phased return to the office, operating a skeleton staff throughout the week.

Our switchboard number 020 8681 4994 is fully operational and individual members of the team can still be reached directly:

Wealth Management & Mortgages

Jonathan Kelly – 020 8256 9984

Gina Gasparino – 020 8256 9990

Carmel Jones – 020 8256 9982

Estate Planning

Prakash Patel – 020 8256 9983

Aine O’Flaherty – 020 8256 9985

Insurance

Amit Patel – 020 8256 9986

Kim Shergold – 020 8256 9981

Mahend Roopchund – 020 8256 9980

Danny Levett – 020 8256 9989

If you have any questions relating to your financial or insurance arrangements please do not hesitate to contact the team on 020 8681 4994.

In the meantime, we hope you are enjoying a safe and happy summer.

Image Courtesy of Flickr_Ishan Manjrekar

Summer Statement 2020

An unprecedented Summer Statement was delivered today by the Chancellor of the Exchequer, Rishi Sunak.

Although the economy is starting to open up gradually after its pandemic-enforced quarantining, the chancellor’s statement is an attempt to stem the damage from a forecast 14% slump in GDP this year, according to the Bank of England, and a potential rise in the unemployment rate from 3.9% to 15%, according to the Organisation for Economic Cooperation and Development.

About the Budget

This snapshot is not an in-depth analysis but aims to give you a quick summary of the key points announced by the Chancellor from the dispatch box.

More details are available from GOV.UK

Main Headlines from the Speech

Introduction

  • Extraordinary measures introduced to offset effects of Covid-19 virus
  • £160bn spent by Government in addressing the Corona virus crisis
  • Economy contracted by 25% in first six months of year
  • Government will not be defined by the crisis, but by their response to it

 

Economic Measures

  • Three point strategy to support, protect and retain jobs
  • Furlough scheme to be wound down gradually from October
  • £1,000 bonus payable to employers for retaining furloughed employees
  • ‘Kickstarter’ job package for 16-24 year olds
  • Government subsidy worth up to £6.5k for each employee taken on under Kickstart Scheme
  • £2,000 bonus for employees taking on trainees
  • £1,500 bonus for apprentices over age 25
  • Companies able to apply for job subsidies within one month
  • Additional funding for the National Careers Service
  • Help for long term unemployed
  • £1.6bn additional funding for DWP

 

Infrastructure/Housing

  • £3bn scheme to make homes and buildings more environmentally friendly
  • £2bn Green Homes Grant to make homes energy efficient – up to £5k per household
  • £1bn to improve energy efficiency of public buildings
  • Property transactions fell by 50% in May
  • Stamp duty threshold raised to £500K (from £125K) until 31/3/21 effective immediately.
  • Predicted 9 out of 10 people will pay no SDLT this year.

 

Hospitality and Tourism

  • 1.8 million people employed in the hospitality and tourism sector. 1.4million workers in the sector have been furloughed. 80% of sector stopped trading in April
  • VAT on food, accommodation and attractions to be cut to 5% from 15 July until Jan 12th 2021
  • August special – ‘Eat out to help out’ – 50% discount available Mon to Weds worth up to £10/head (at participating establishments).

 

Image courtesy of smee.bruce, Flickr

Financial Focus: Summer 2020

No one could have predicted how the last few months have turned out. The disruption to everyday life seems set to continue, with coronavirus lockdown measures easing but still bringing us nowhere near to our to ‘pre-Covid-19′ lives. The same can be said for the stock markets, which have seen sharp falls; the investment landscape has certainly shifted – if not permanently, then for the forseeable future. This naturally has implications on personal financial planning, savings and investments, protection and pensions. Will-writing and estate planning has also seen a recent increase in demand, for sobering reasons, but the astonishing fund-raising accomplishments of Captain Tom Moore highlight the importance of planning for long and productive later lives. In this edition we bring you an overview on how these globally altered circumstances may impact on your own financial positions. Click here to read our summer newsletter. FOCUS Summer 2020 INSTAGRAM

PK Partnership cost of financial advice

COVID-19: Unoccupied Commercial Property Conditions

Due to Government advice and restrictions resulting from the COVID-19 lockdown, the continued closure of many businesses throughout the UK and indeed around the world has seen a large number of unoccupied businesses and commercial buildings. Unoccupied buildings, closed temporarily or permanently, can be at greater risk from theft, escape of water, arson or vandalism.

If your business premises remain closed, it is important that you adhere to the unoccupancy conditions of your policy. You should refer to your policy wording for the exact requirements defined by your insurer. As the majority of policies advise, if you do not comply with these conditions you will not be covered. 

In general, insurers will be looking for the building to be appropriately inspected and secured as follows:

  • the premises must be inspected internally and externally at least once per week
  • secure the premises ensuring doors, windows and gates are locked
  • ensure intruder alarms are activated
  • gas and electricity must be turned off at the mains (other than any electricity supply supporting any intruder or fire alarm)
  • turn off the water supply at the mains
  • all refuse and waste materials must be removed from the premises
  • ensure all fire alarms and sprinkler systems remain fully operational
  • ensure that internal fire doors are closed
  • ensure all non-essential electrical devices are turned off

It is advisable to keep a written record of this activity.

If your insurance policy has unoccupied/security conditions and the property was unoccupied prior to the COVID-19 outbreak, then the usual conditions required by your insurer remain the same as before.

This is an extremely difficult time for businesses and PK Partnership want to provide you with as much help as possible during this time of temporary change to working practices to ensure you comply with the conditions of your policy.

If you have any questions relating to your insurance arranged through PK Partnership or if there has been any change to your business activity that may affect cover please contact your account executive on 020 8681 4994.

PK Partnership cost of financial advice

Covid-19 measures: to May 2020 update

Following the range of updates over the last several weeks, we have now rounded up the latest information from the government on specific schemes where additional detail was released. This update covers measures through to 22 May.

Coronavirus Job Retention Scheme (CJRS)

On 12 May the Chancellor announced the extension of the CJRS by four months to the end of October:

  • Furloughed workers will continue to receive 80% of their current salary, up to current maximum of £2,500.
  • From the start of August, furloughed workers will be able to return to work part-time, with employers being asked to pay a percentage towards the salaries of their furloughed staff.
  • Also from the start of August, employers will have to start meeting part of the cost of the scheme overall.
  • More details and information around the implementation of the August changes will be made available by the end of May.

 

The next announcement at the end of the month will be a crucial one, as it will force many employers to decide whether to continue furlough after the end of July – and start to meet some of the furlough costs themselves – or to start the 45-day consultation period required for proposed collective redundancies of 100 or more employees.

The current expectation is that the government payment will fall to 60%. It will not be an easy decision, as underlined by the March to April jump of 69% in unemployment-related benefit claims to 2.1 million.

The latest figures show CJRS has resulted in:

  • 8 million employees having been furloughed; and
  • Total payments made amounting to £11.1bn.

The Office for Budget Responsibility’s latest projections put the gross cost of the scheme at £14bn a month, although once income tax and NICs are considered the net cost is £10bn – £11bn.

Self-employed Income Support Scheme (SEISS)

The scheme is now live and 2 million claims had been submitted by 18 May with a total value of £6.1bn (an average of about £3,000 each). The Chancellor continues to be lobbied about small company directors who draw dividends as their remuneration rather than salary, but nothing has emerged except that the Treasury is still thinking about it.

Bounce Back Loan Scheme (BBLS)

The scheme opened for business at 9.00 am on 4 May. As at close of business on18 May:

  • The number of approved loans had risen to 464,393; and
  • The total advanced had reached £14.18bn, an average loan of about £30,500.

The number of accredited lenders has remained unchanged at 14.

Coronavirus Business Interruption Loan Scheme (CBILS)

The number of accredited lenders has grown  to 76.

As at close of business on 18 May:

  • The number of approved loans had risen to 40,564; and
  • The total advanced had reached £7.25bn an, average loan of about £178,700.

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

On 19 May the Chancellor announced that the upper limit for loans under this scheme would be raised from £50m to £200m from 26 May. Any company receiving a CLBILS will be asked to agree to not pay dividends and to “exercise restraint on senior pay”, which the Treasury says includes a ban on cash bonuses, except where they were previously agreed.

As at close of business on 18 May (i.e. before the increase announcement):

  • The number of approved loans was 85; and
  • The total advanced had reached £0.59bn, an average loan of about £6.86m.

The scheme currently has 12 approved lenders.

Business rates revaluation

The Ministry of Housing, Communities & Local Government (MHCLG) has announced that the business rates revaluation for England and Wales, which was due to take effect from April 2021, has been postponed. This would have used a valuation date for open market rentals of 1 April 2019 (as opposed to the current 1 April 2015).

It is unclear how long the postponement will last. The MHCLG had been aiming to reduce the revaluation cycle to three-yearly and there was legislation to this effect going through parliament. Given the great difficulty surrounding commercial property valuations at present – especially for the most controversial sector, retail – it is possible that postponement will be for at least a couple of years.

Deferred Self Assessment Payment on Account

On 15 May HMRC issued guidance on how to defer the second payment on account for 2019/20, due on 31 July 2020. This confirmed that the option is available for individuals:

  • registered in the UK for self assessment; and
  • finding it difficult to make their second payment on account by 31 July 2020 due to the impact of Covid-19.

HMRC restated that it will not charge interest or penalties on any amount of the deferred payment on account, provided it is paid on or before 31 January 2021. There is no requirement to notify HMRC of the intention to defer.

Mortgage holidays

In March the government introduced legislation which prevented residential mortgage lenders starting repossession proceedings if repayments were not made. This protection was scheduled to end on 30 June.

According to the Treasury over 1.8m mortgage payment holidays were taken up as a result. On 22 May the FCA published proposals which would extend the holiday period to 31 October, coinciding with the current end date for the CJRS. Lenders have until 26 May to respond to the FCA’s proposed measures, with guidance expected to be finalised ‘shortly afterwards’.

Reimbursement of work-at-home expenses

The government announced on 13 May that there will be a temporary tax and NIC exemption where a payment is made by an employer to reimburse an employee for the cost of equipment purchased to enable home working.

A statutory instrument brings the exemption into being from 11 June. However, in a parliamentary statement the Treasury said that “HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any reimbursed payments made from 16 March 2020”.

Insurance

On 14 May the Financial Conduct Authority (FCA) issued a statement setting out measures for insurance companies  which took effect from 18 May. These included requiring insurers to consider:

  • Reassessing the risk profile of customers. The FCA notes this may have changed because of Covid-19 creating scope to offer customers “materially lower premiums”.
  • Whether there are other products they can offer which would better meet the customer’s needs and revise the cover accordingly, e.g. a move from fully comprehensive cover to third party fire and theft.
  • Waiving cancellation and other fees associated with adjusting customers’ policies.
  • Granting customers a payment deferral unless it is obviously not in their interests to do so. That payment deferral should be for a period of between one to three months and be available to any customers up to 18 August 2020.

Business Interruption Insurance

On 15 May the FCA issued a statement setting out how it was “engaging with policyholders and insurance intermediaries” on the contentious issue of business interruption insurance. The regulator invited both groups to provide information ahead of its planned court action, aimed at obtaining some clarification on policy wordings.

Future Fund

The Future Fund was opened for business on 20 May. It is designed to provide £250m in matching finance for innovative and high growth businesses which cannot access other schemes. The government has said it would amend the rules of the Enterprise Investment Scheme to protect Future Fund investors from losing relief on their previous investments made prior to any investment through the Future Fund. The Fund will operate in partnership with the British Business Bank.

Office for Budget Responsibility (OBR)

The OBR issued updated coronavirus cost projections on 14 May. These do not take account of the CJRS extension, but nevertheless put the cost of government measures in 2020/21 at £123.2bn. The OBR has made no amendments to its main coronavirus reference scenario, issued on 14 April, which assumed a V-shaped recovery.  Since then there has been a growing consensus that the recovery will not be as rapid a bounce back as some had hoped. Leaked papers from the Treasury show that it is much less optimistic than the OBR.

Covid-19 recovery strategy

Following the Prime Minister’s presentation on Sunday 10 May, a raft of material was issued on 11 May setting out the government’s plans and further guidance. This included a 60-page recovery strategy document and eight guides for employers, employees and the self-employed on safe working practices.

 

 

Image Courtesy of Patrícia Almeida on Flickr

Covid-19 measures: 4 May 2020 update

Following the range of updates over the last several weeks, we have now rounded up the latest information from the government on specific schemes where additional detail was released. This update covers measures discussed on 4 May.

Bounce Back Loan Scheme (BBLS)

The scheme opened for business at 9.00 am on 4 May. Since last week’s initial announcement further details have emerged:

Terms

  • The loan can be between £2,000 and £50,000, subject to a maximum of 25% of turnover.
  • The government provides a 100% guarantee to the lender: the always borrower remains fully liable for the debt.
  • No security is required.
  • The first year’s interest will be covered by a government Business Interruption Payment. During that period, the borrower does not have to make any repayments.
  • The interest rate thereafter is set at 2.5%.
  • There are no fees for the borrower.
  • The maximum term of the loan is six years, but repayment is allowed at any time. No early repayment fees will apply.

 

Criteria

  • The application form contains only seven questions which require basic information, e.g. turnover, company number etc.
  • While the British Business Bank will run the scheme, it recommends businesses should directly approach lenders. At present only ten banks are participating (nine of which are High Street names). Only one, HSBC, is offering loans to non customers, subject to know-your-customer and other checks.
  • The borrower must be based in the UK, have been negatively affected by coronavirus and be able to confirm that on 31 December 2019 it was not a “business in difficulty”.
  • If the business cannot pass that end-2019 financial test, then it must certify that the loan does not breach de minimis State aid restrictions and will not be used to support export-related activities.
  • Applicants cannot have received a loan under the existing Coronavirus Business Interruption Loan Scheme (CBILS). However, a CBILS loan of up to £50,000 can be transferred to the BBLS up until 4 November 2020.

The first day of the BBLS saw over 110,000 businesses apply for loans totalling an estimated £3.3bn (an average loan of about £30,000).

Coronavirus Business Interruption Loan Scheme (CBILS)

With the advent of the BBLS, the minimum new loan under the CBILS has been increased to £50,000.

The number of British Business Bank accredited lenders under the schemes now over 50.

As at 29 April, £4.1bn had been lent to 25,262 borrowers (an average loan of about £165,000)

Coronavirus Job Retention Scheme (CJRS)

The Department for Work and Pensions has confirmed that pay for furloughed workers taking family-related leave (e.g. Maternity Pay and Paternity Pay) is to be based on normal earnings rather than furloughed pay.

The Pensions Regulator has issued updated guidance for employers on automatic enrolment of pension and the CJRS.

As at 3 May CJRS applications from 800,000 employers had been received and 6.3 million employees – about 20% of UK employees – were covered by the scheme, according to HMRC. The total value claimed is £8bn.

Given the 45-day consultation period for redundancy, any announcements on the extension of the CJRS beyond 30 June are likely within the next week.

Self-employed Income Support Scheme (SEISS)

Revised guidance now has more information on eligibility and is supported by a new online eligibility tool.

The launch date of the scheme has been confirmed as Wednesday 13 May. Approved claims will be paid “within 6 working days”.

Despite considerable lobbying there have been no moves from the Treasury to assist directors of small companies who rely on dividends to provide their remuneration.

Grant Funding Schemes

On 2 May, the government announced a £617m extension to the Small Business Grants Fund (SBGF) and Retail, Hospitality and Leisure Grants Fund (RHLGF) schemes. This is primarily aimed at businesses operating in shared spaces (e.g. co-working offices), regular market traders, small charity properties that would meet the criteria for Small Business Rates Relief, and bed and breakfasts that pay council tax rather than business rates. The allocation of funding will be at the discretion of local authorities.

Businesses must have under 50 employees and be able to demonstrate that they have seen a significant drop of income due to Coronavirus restriction measures.

There will be three levels of grant payments:

  • The maximum will be £25,000.
  • There will also be grants of £10,000.
  • Local authorities will have discretion to make payments of any amount under £10,000.

Further guidance for local authorities will be set out shortly.

Tax credits

The government has confirmed that those unable to work their normal hours or furloughed because of Covid-19 will continue to receive their usual tax credit payments, provided they remain employed or self-employed. Covid-19-related changes to income and/or hours do not need to be reported, but any other changes must to be notified to HMRC in the normal way.

Business Interruption Insurance

Following its ‘Dear CEO’ letter on 15 April, the Financial Conduct Authority (FCA) has announced that it “intends to obtain a court declaration to resolve contractual uncertainty in business interruption (BI) insurance cover”. The FCA says that “any uncertainty needs to be resolved as quickly as possible” and it hopes to place the issue before the courts “in an agreed and urgent manner”.

Any judgement will not determine how much is payable under individual policies but will provide the basis for doing so and offer guidance for the Financial Ombudsman.

Lifetime ISAs (LISAs)

The Treasury has temporarily reduced the withdrawal charge on LISAs from 25% to 20%, removing what had been an effective 6.25% penalty once the government bonus was taken into account. The reduction applies from 6 March 2020 to 5 April 2021, meaning some (dis) investors in March and April will be due a refund.

Summary of government business support

Firm Size Turnover < £45m Turnover > £45m Investment grade
Bounce Back Loans (BBLS – up to £50,000) X X X
Coronavirus Business Interruption Loan Scheme (CBILS – £50,000 – £5,000,000) X
Coronavirus Large Business Interruption Loan Scheme (CLBILS) X X
Covid Corporate Financing Facility (CCFF) X
Job Retention Scheme X X X
Business Grants (dependent on rateable value of the property) X X X
VAT deferrals X X X
Covering the cost of statutory sick pay X X X
Future Fund (only if VC funded) X X

Source: HM Treasury/GOV.uk, 4 May 2020 press release

 

Image Courtesy of Flickr_Ishan Manjrekar

Updated Covid-19 measures: to 27 April 2020

Changes since last bulletin on 20 April 2020

  • Bounce back loan scheme launched with 100% government guarantee.
  • Possible shape of Coronavirus Job Retention Scheme after the end of June.
  • Abandonment of requirement for forward-looking financial information or business plans when applying for business interruption loans.
  • Temporary ban on use of statutory payment orders and winding up orders for non-payment of commercial rents.
  • Government’s business support finder tool introduced.
  • FCA confirms three-month payment freeze for motor finance, buy-now pay-later, rent-to-own) and pawnbroking agreements.
  • One month interest-free payment freeze for high cost short term credit ordered by FCA.
  • Promise from Chancellor of more detail on Self-employed Income Support Scheme in week commencing 27 April.

 

Background

The 11 March Budget from the Chancellor, Rishi Sunak, included £7 billion of expenditure targeting the impact of Covid-19 on employees, the self-employed and businesses. On 17 March a further raft of measures was announced, amounting to an additional £20 billion of support expenditure plus £330 billion of loan guarantees.

Between 20 March and 26 March, the Chancellor made three separate rounds of announcements, including measures to support retention of employees, a range of financing options and an income replacement scheme for the self-employed. In many instances, the devolved governments have followed suit, with funds provided from Westminster under the Barnett formula.

 

Guidance on measures have regularly been issued as queries have been raised and clarifications sought. As a result, what was originally announced could well differ from what now applies, for example, in the cut-off date for the job retention scheme.

We have pulled together a round-up of the various announcements so far for businesses and individuals including useful links to government sites and added new details where released, including announcements through to 27 April.

Measures for business

Coronavirus Job Retention Scheme (CJRS)

Some form of job support scheme had been expected after the 17 March announcement and the CJRS is similar to schemes that have already been set up elsewhere in Europe. Under the CJRS, “HMRC will reimburse 80% of a furloughed worker’s wage costs, up to a cap of £2,500 per month’, provided the worker was on the employer’s PAYE payroll on or before 19 March 2020 and was notified to HMRC on an RTI submission by that date (something which generally rules out March 2020 recruits unless they are paid weekly). The cut-off date was originally announced as 28 February but was subsequently changed to 19 March (the day before the Chancellor announced the CJRS).

The time frame for payments covered by the CJRS was extended to the end of June on 17 April. The scheme opened for applications on 20 April and a week later over 500,000 businesses, large and small, had applied for payments covering over four million furloughed workers. However, the latest estimate is that “just shy of 30 million” employees could benefit from the CJRS.

 

In this context ‘furloughed workers’ are non-working employees (including part timers and employees on agency, flexible or zero hours contracts) who are kept on the payroll, rather than being laid off. The employee must be furloughed for at least three consecutive weeks. The employer has to designate these employees and submit relevant information to HMRC via a “new online portal” available “by the end of April”. The HMRC payments will cover 80% of “usual monthly wages” plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

Employees who left or were made redundant after 28 February can be re-employed and placed on furlough, with the (former) employer then claiming under the CJRS for their wages through the scheme. This applies even if re-employment does not start until after 19 March.

The CJRS is available to one person companies whose director/owner furloughs themselves. However, only salary is covered, not dividends, and like all other furloughed workers, the director “cannot undertake work for or on behalf of the organisation”. According to press reports the Treasury nevertheless accepts that the director may continue with their statutory obligations in that role. Despite much lobbying, the Treasury continues to resist any relaxation of the CJRS’s focus on salary alone. 

NEW

The question of what happens to the CJRS after 30 June is coming to the fore, with business leaders pointing to the 45-day redundancy process meaning that clarity is required by mid-May. The Treasury is reported to be in discussions on the issue and rumoured solutions include a gradual phasing down of coverage (e.g. to 60%, then 40% of pay) and/or narrowing the scheme’s focus to concentrate on sectors that will not reopen in the early stages (e.g. hospitality).

Statutory sick pay (SSP)

Businesses with fewer than 250 employees as at 28 February 2020 will be refunded the full cost of providing SSP to any employee off work for up to 14 days because of coronavirus.

Loan guarantees

A government-backed loan guarantee scheme announced in the Budget has since been regularly extended and enhanced. What started as two schemes on 11 March has become five with the announcement of Bounce Back Loans on 27 April (see below). The Government will provide loan guarantees up to “an initial” £330 billion for all sizes of businesses. In all instances businesses remain responsible for repaying any facility they may takeout – any guarantees are for the lender:

  • For large firms (with more than £45million turnover), the Bank of England has launched a Covid Corporate Financing Facility (CCFF), which “will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy”. The company must satisfy Bank of England lending criteria, which originally meant having an investment grade credit rating from a ratings agency but has since been changed to also allow lending banks to judge credit worthiness. However, the ultimate decision remains with the Bank of England. As at 27 April, over £14 billion had been provided under the CCFF.
  •  For medium sized businesses (turnover between £45 million and £500 million)  On 3 April the Chancellor announced the Coronavirus Large Business Interruption Loan Scheme (CLBILS). The scheme is due to launch later in April and will fill a finance gap that had emerged between the two existing loan support schemes. The CLBILS will have a loan ceiling of £25 million and is targeted at businesses that are too large for the CBILS (see below) but fail to meet the criteria for the CCFF. The new scheme will provide a government guarantee of 80% on individual loans and other forms of finance (e.g. overdrafts) for businesses.

The aim is to provide support for businesses that were viable before the Covid-19 pandemic but now face significant cash flow difficulties that would otherwise make their business unviable in the short term. Lenders will be expected to conduct their usual credit risk checks and charge commercial rates of interest.

  • For small and medium sized businesses (turnover up to £45m) The loan limit on the Coronavirus Business Interruption Loan Scheme (CBILS) is £5 million (originally £1.2 million), with no interest charged for the first twelve months and lender-levied fees will be covered. The scheme is delivered over 40 accredited commercial lenders, backed by the British Business Bank. Eligible SMEs must be UK-based and meet “the other British Business Bank eligibility criteria”. The government has made clear that this now means the CBILS is available to all SME businesses affected by Covid-19 and not just those unable to secure regular commercial financing elsewhere. Finance under the scheme can take the form of term loans, overdrafts, invoice finance and asset finance.

Lenders cannot require personal guarantees on borrowing of under £250,000, nor can primary residential property be taken as security under the scheme. When a personal guarantee is required, it is capped at 20% of the outstanding value of the loan. As at 27 April, the CBILS had provided £3.4 billion of loans to 20,000 businesses. Applications received had reached over 60,000, although initial inquiries had exceeded 300,000. The current acceptance rate is over 80%, according to the Chancellor in his statement made on 27 April.

NEW

  • For small business On 27 April the Chancellor announced a new Bounce Back Loan Scheme (BBLS). This will provide micro loans of between £2,000 and £50,000 (subject to a ceiling of 25% of turnover) with the government supplying a 100% guarantee for lenders. No interest will be charged in the first 12 months and ‘for most firms, loans should arrive within 24 hours of approval’. There will be no forward-looking tests of business viability, nor will there be any “complex eligibility criteria”.

The BBLS will be run by the British Business Bank and will be open for business from 9.00am on Monday 4 May. The standard application form will be two pages long. Guidance on how to apply when the time comes can be found here.

NEW

In his statement of 27 April, the Chancellor said that for both the CBILS and CLBILS, “A statement will be issued shortly by UK Finance confirming that banks will not require from businesses the provision of forward-looking financial information or business plans”. This addresses the problem many businesses, particularly in the hospitality sector, had found when applying for finance, given that there is as yet no government guidance on how and when lockdown will be unwound. The Chancellor also removed a constraint which had hindered some banks: there will no longer be a 60% ceiling on the amount of a lender’s business interruption scheme loan book covered by government guarantees.

Support package for innovative firms

On 20 April the Chancellor announced a two-part support package for ‘innovative firms’, which means mainly start-ups and other venture capital backed business that would be unable to raise CBLIS or CLBILS finance.

  • The Future Fund will launch in May and be delivered with the British Business Bank. The fund will provide loans between £125,000 and £5 million, with private investors at least matching the government commitment. These loans will automatically convert into equity on the company’s next qualifying funding round, or at the end of the loan if they are not repaid.

To be eligible, a business must be an unlisted, UK registered and UK based company that has previously raised at least £250,000 in equity investment from third party investors in the last five years. To begin with the government is committing £250 million to the scheme. It will initially be open until the end of September, with its scale kept under review.

  • Targeted Support for Research and Development (R&D) £750 million of targeted support for the most R&D intensive small and medium size firms will be made available through a grants and loan scheme operated by Innovate UK, the national innovation agency.
  • Innovate UK will accelerate up to £200 million of grant and loan payments for its 2,500 existing customers on an opt-in basis. An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments will be made by mid-May.

 Deferral of VAT and Income Tax Payments  

For the period between 20 March 2020 and 30 June 2020, businesses will not be required to make a VAT payment. Instead they will be able to defer this payment until the end of the 2020/21. VAT refunds and reclaims will be paid by the government as normal. No applications will be required as the process will be automatic.

Self assessment income tax payments due on the 31 July 2020 (the second payment on account for 2019/20) will be deferred until the 31 January 2021. This also will not require an application and is not limited to just the self-employed, although the Treasury says “If you are still able to pay your second payment on account on 31 July you should do so”. Penalties and interest for late payment will not be charged in the deferral period.

Business Rates Retail Discount 

All shops, cinemas, restaurants, music venues and business operating in the leisure and hospitality sectors will have no business rates to pay in 2020/21.

Grant Funding Schemes

There are two grant schemes based on rateable values:

  • Small Business Grant Fund All eligible businesses in England in receipt of either Small Business Rates Relief (SBRR) or Rural Rates Relief (RRR) in the business rates system will be eligible for a payment of £10,000.
  • Retail, Hospitality and Leisure Grant Eligibility All eligible businesses in England in receipt of the Expanded Retail Discount (which covers retail, hospitality and leisure) with a rateable value of up to than £15,000 will be eligible for a cash grants of £10,000 per property and those with a rateable value of more than £15,000 but less than £51,000 will be eligible for a cash grant of £25,000 per property.

Nursery businesses that pay business rates

For nursery school businesses based in England, there will be a business rates holiday for 2020/21. The nursery property must be:

  • occupied by providers on Ofsted’s Early Years Register
  • wholly or mainly used for the provision of the Early Years Foundation Stage

Commercial insurance

The question of the extent to which any insurance policy provides cover for the Covid-19 outbreak has proved contentious. Pandemic cover is not a feature of most business disruption cover, a point underlined by the Association of British Insurers (ABI) in a statement it issued on 17 March. The ABI has since launched an information hub dealing with the impact of the virus on a range of insurance policies, from trade credit to private health.

On 15 April the Financial Conduct Authority (FCA) issued a ‘Dear CEO’ letter to insurers, setting out its expectations of regulated firms and a reminder that for some SMEs, complaints will fall within the remit of the Financial Ombudsman Service.

Off-payroll working in the private sector (IR35)

On 17 March, the Chief Secretary to the Treasury, Steve Barker, said in a statement to the House of Commons that the start date for the new IR35 tax rules would be deferred to
6 April 2021.

Time to Pay (TTP)

In the Budget, the Chancellor announced that HMRC would scale up its Time to Pay service, giving businesses and the self-employed the chance to defer tax payments. As at 27 April, over 60,000 businesses and individuals had agreed TTP arrangements with HMRC.

Protection from property forfeiture, winding up orders and statutory demands

Commercial tenants who cannot pay their rent because of Covid-19 are protected from forfeiture of their business property if they miss a payment up until 30 June 2020. Reports suggest that to date only about half of the commercial property rents due on Lady Day (25 March) have been paid.

On 23 April the government announced that landlords would not be able to make statutory demands between 1 March and 30 June or present winding up petitions between 27 April and 30 June “where a company cannot pay its bills due to coronavirus”. The government also promised secondary legislation to prevent landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent.

The next quarter day for rental payment is Midsummer Day, 24 June 2020.

Going concern

The Financial Reporting Council (FRC) has issued financial guidance in conjunction with the Financial Conduct Authority (FCA) and Prudential Regulatory Authority. This includes extensive information for auditors covering areas such as how to deal the question of whether a business is a going concern.

Wrongful Trading and business restructuring

On 28 March the UK Business secretary announced changes to insolvency law “to enable UK companies undergoing a rescue or restructure process to continue trading, giving them breathing space that could help them avoid insolvency”.

The wrongful trading law is being temporarily suspended, retrospective from 1 March 2020. for three months. This gives company directors the ability to keep their businesses in being without risking personal liability.

Scotland, Wales and Northern Ireland

Some elements of business support are devolved:

  • Guidance for Scotland is here
  • Guidance for Wales is here
  • Guidance for Northern Ireland is here

Government guidance for employers and businesses is here.

The government’s business support finder tool is here.

 

Measures for individuals

Mortgage holidays

For people who find themselves in financial difficulties because of coronavirus, mortgage lenders will offer at least a three-month mortgage holiday. This holiday extends to buy-to-let landlords.

Personal loans, credit cards and overdrafts

The FCA announced temporary measures, effective from 14 April, which expect firms providing consumer finance to:

  • Offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by Covid-19.
  • Allow customers who are negatively impacted by Covid-19 and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months.
  • Make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force.
  • Ensure consumers using any of these temporary payment freeze measures will not have their credit file affected.

 

NEW

Motor finance and high cost credit

On 24 April the FCA introduced a package of measures covering how companies providing motor finance and ‘high cost finance’ (for example, payday loans and pawnbroking) should treat customers. There is now a requirement to grant those facing financial difficulties because of Covid-19 a three-month payment freeze for motor finance, buy-now pay-later (BNPL), rent-to-own (RTO) and pawnbroking agreements. The FCA say that firms offering motor finance should not alter Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way that is unfair.

For high cost credit, including payday loans, a one month interest-free payment freeze applies to affected borrowers.

FCA consumer guidance is available here.

Protection from eviction

Private and social landlords will not be able to start proceedings to evict tenants for the period to 30 September 2020.

 

Statutory sick pay (SSP)

SSP is currently paid at the rate of £95.85 a week. It is now available to employees from day one, instead of day four, for those who are suffering from the virus or who have been advised to self-isolate. There has been no change in the minimum earnings threshold for SSP (£120 a week in 2020/21).

Individuals ineligible for SSP

Self-employed and gig economy workers generally do not qualify for SSP. Instead they may be entitled to Contributory Employment and Support Allowance.

Covid-19 sufferers and self-isolators will be able to claim the benefit from day one instead of day eight. The Minimum Income Floor in Universal Credit (UC) has been temporarily removed to ensure that time off work because of sickness is reflected in benefits.

For 12 months from 6 April 2020, the standard allowance in Universal Credit (UC) and the basic element in Working Tax Credit (WTC) for will be increased by the equivalent of about £20 a week over and above annual uprating (which were to £323.22 per month for UC for age 25 and over and £1,995 a year for WTC for 2020/21). This effectively brings UC into line with the rate of SSP. The change applies to all new and existing UC claimants and to existing WTC claimants.

Housing benefit

Housing benefit and the housing element of UC will be increased so that the Local Housing Allowance will cover at least 30% of market rents.

Hardship Fund

The Chancellor announced in the Budget a £500 million Hardship Fund, which would be distributed to Local Authorities so that they could support the vulnerable.

Government guidance for employees is here.

Government guidance on claiming benefits is here.

Main provisions for the self-employed

On Thursday 26 March, Chancellor Rishi Sunak made his long-awaited statement about the Covid-19 government support scheme for the self-employed, called the Self-employment Income Support Scheme (SEISS). Reports suggest that the announcement had been slow to arrive because of the greater difficulty in structuring and running a scheme that relied on annual information (via tax returns) and could not operate via the PAYE system.

SEISS provisions

The SEISS will pay a directly payable taxable grant to the self-employed (including members of partnerships) based on 80% of profits averaged over the last three tax years (or shorter periods if self-employment started after 2016/17), subject to a maximum of £2,500 a month.

  • The initial payment term of the SEISS grant will be “at least three months”.
  • The payment of the grant will not prevent the claimant from continuing to work.

 

Restrictions on the SEISS

The SEISS will be restricted in five ways:

  1. Self-employment must provide the majority of the claimant’s income (based on the period used for the £50,000 test set out below).
  2. Trading profits either:
  • were no more than £50,000 in 2018/19; or
  • trading profit were no more than £50,000 averaged over the three tax years from 2016/17. If trading started between 2016-19, HMRC will only use those years for which a Self-Assessment tax return has been filed.

According to the Chancellor, these thresholds mean the scheme covers 95% of the self-employed. The corollary is that it creates a cliff edge at £50,000, a figure that appears elsewhere in the tax system (e.g. the higher rate tax threshold).

  1. The claimant must have submitted a 2019 tax return (covering the 2018/19 tax year). As a concession, any later filer will have four weeks to submit their overdue return if they wish to be included in the scheme.
  2. The claimant must have traded in 2019/20 and still be trading when making the application (unless affected by Covid-19)
  3. The claimant must have lost trading profits due to Covid-19.

HMRC will use their existing information to assess eligibility and contact individuals directly, requesting completion of “a simple online form”. A gov.uk webpage gives more details, but is somewhat confusingly headed “Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme”. The “don’t call us, we’ll call you” approach is aimed at preventing HMRC being overwhelmed with telephone queries, as has happened with the DWP’s Universal Credit system. HMRC are aiming to contact eligible people “by mid May 2020”. More detailed guidance is due to be issued in the week commencing 27 April.

Timing of payments

Payments from HMRC should start at the beginning of June. The initial sum will represent three months’ cumulative payments. Until then the self-employed can claim Universal Credit. In his statement the Chancellor said Universal Credit could give a self-employed person with a non-working partner and two children, living in the social rented sector, support of up to £1,800 a month.

Anyone whose self-employment started after 5 April 2019 and thus has no self-employed earnings recorded with HMRC cannot benefit from the scheme and must rely on Universal Credit.

One-person companies

Those who operate through one person companies are not covered by the scheme as, despite the media label often given to them, they are not self-employed. The Treasury press release states that such people “will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes”. The use of the word ‘salary’ is key here, as many one person companies route the bulk of their employee’s remuneration via dividends to reduce National Insurance liabilities (see CJRS above).

In his closing remarks the Chancellor noted that “…in devising this scheme … it is now much harder to justify the inconsistent contributions between people of different employment statuses”. This was a subtle way of suggesting that National Insurance contributions will have to rise for the self-employed once the crisis is over.

UPDATED

Reports have suggested that the Small Business Minister is lobbying for a change on the approach to dividends, but meeting Treasury resistance. One potential problem appears to be that HMRC cannot easily distinguish between ‘remuneration’ dividends and dividends originating from normal investment. In his comments following his statement on 27 April the Chancellor remained unwilling to extend the CJRS to cover dividend payments.

Coronavirus Act

The day before the Chancellor’s latest statement, the Coronavirus Act 2020 received Royal Assent. This 348-page Act deals with a broad range of Covid-19 related measures (many of which exclude Scotland because of its devolved powers), including:

  • Food supply.
  • Statutory Sick Pay (SSP) modifications, e.g. funding of the employer’s liabilities.
  • Suspension of the complex abatement rules that either reduce or suspend NHS pensions on an individual’s return to work.
  • Uprating of working tax credit.
  • Protection from eviction for residential tenancies to 30 September 2020.
  • Protection from forfeiture for commercial tenancies to 30 June 2020.

 

The explanatory notes for the original Bill (introduced on 19 March ) are here.

Updated government Covid-19 guidance on business support is here and for employees is here.

Image Courtesy of Flickr_Ishan Manjrekar

Covid-19 measures: to 20 April 2020 UPDATED

Changes since last bulletin on 3 April 2020

  • Cut-off date for individual eligibility for Coronavirus Job Retention Scheme (CJRS) moved to 19 March 2020.
  • CJRS extended to 30 June.
  • Revised eligibility requirements for Self-employed Income Support Scheme.
  • New £1.25 billion support package for innovative firms
  • CBILS loans now total £1.1 billion.
  • Clarification of grant funded schemes.
  • FCA ‘Dear CEO’ letter to insurance companies.
  • FCA temporary measures covering loans, credit cards and other personal finance’
  • Many hypertext links updated.

Background

The 11 March Budget from the Chancellor, Rishi Sunak, included £7 billion of expenditure targeting the impact of Covid-19 on employees, the self-employed and businesses. On 17 March a further raft of measures was announced, amounting to an additional £20 billion of support expenditure plus £330 billion of loan guarantees.

Between 20 March and 26 March, the Chancellor made three separate rounds of announcements, including measures to support retention of employees, a range of financing options and an income replacement scheme for the self-employed. In many instances, the devolved governments have followed suit, with funds provided from Westminster under the Barnett formula.

Guidance on measures have regularly been issued as queries have been raised and clarifications sought. As a result, what was originally announced could well differ from what now applies, for example, in the cut-off date for the job retention scheme.

We have pulled together a round-up of the various announcements so far for businesses and individuals including useful links to government sites and added new details where released, including announcements through to 20 April.

Measures for business

Coronavirus Job Retention Scheme (CJRS)

Some form of job support scheme had been expected after the 17 March announcement and the CJRS is similar to schemes that have already been set up elsewhere in Europe. Under the CJRS, “HMRC will reimburse 80% of a furloughed worker’s wage costs, up to a cap of £2,500 per month’, provided the worker was on the employer’s PAYE payroll on or before 19 March 2020 and was notified to HMRC on an RTI submission by that date. The cut-off date was originally announced as 28 February but was changed to 19 March (the day before the Chancellor announced the CJRS) on 15 April.

The time frame for the CJRS was extended to the end of June on 17 April, with the scheme opening to applications from 20 April.

In this context ‘furloughed workers’ are non-working employees (including part timers and employees on agency, flexible or zero hours contracts) who are kept on the payroll, rather than being laid off. The employee must be furloughed for at least three consecutive weeks. The employer has to designate these employees and submit relevant information to HMRC via a “new online portal” available “by the end of April”. The HMRC payments will cover 80% of “usual monthly wages” plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

NEW

Employees who left or were made redundant after 28 February can be re-employed and placed on furlough, with the (former) employer then claiming under the CJRS for their wages through the scheme. This applies even if re-employment does not start until after 19 March.

The CJRS is available to one person companies whose director/owner furloughs themselves. However, only salary is covered, not dividends, and like all other furloughed workers, the director “cannot undertake work for or on behalf of the organisation”. According to press reports the Treasury nevertheless accepts that the director may continue with their statutory obligations in that role.

Statutory sick pay (SSP)

Businesses with fewer than 250 employees as at 28 February 2020 will be refunded the full cost of providing SSP to any employee off work for up to 14 days because of coronavirus.

Loan guarantees

A government-backed loan guarantee scheme announced in the Budget has since been regularly extended and enhanced. The Government will now provide loan guarantees up to “an initial” £330 billion for all sizes of businesses. In all instances businesses remain responsible for repaying any facility they may takeout – any guarantees are for the lender:

  • For large firms (with more than £4 5million turnover), the Bank of England has launched a Covid Corporate Financing Facility (CCFF), which “will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy”. The company must satisfy Bank of England lending criteria, which originally meant having an investment grade credit rating from a ratings agency but has since been changed to also allow lending banks to judge credit worthiness. However, the ultimate decision remains with the Bank of England. As at 3 April, about £3.5 billion had either been provided or committed.
  •  For medium sized businesses (turnover between £45 million and £500 million)  On 3 April the Chancellor announced the Coronavirus Large Business Interruption Loan Scheme (CLBILS). The scheme is due to launch later in April and will fill a finance gap that had emerged between the two existing loan support schemes. The CLBILS will have a loan ceiling of £25 million and is targeted at businesses that are too large for the CBILS (see below) but fail to meet the criteria for the CCFF. The new scheme will provide a government guarantee of 80% on individual loans and other forms of finance (e.g. overdrafts) for businesses.

The aim is to provide support for businesses that were viable before the Covid-19 pandemic but now face significant cash flow difficulties that would otherwise make their business unviable in the short term. Lenders will be expected to conduct their usual credit risk checks and charge commercial rates of interest.

  • For small and medium sized businesses (turnover up to £45m) The loan limit on the Coronavirus Business Interruption Loan Scheme (CBILS) is £5 million (originally £1.2 million), with no interest charged for the first twelve months and lender-levied fees will be covered. The scheme is delivered through 40 accredited commercial lenders, backed by the British Business Bank. Eligible SMEs must be UK-based and meet “the other British Business Bank eligibility criteria”. The government has made clear that this now means the CBILS is available to all SME businesses affected by Covid-19 and not just those unable to secure regular commercial financing elsewhere.  Lenders cannot require personal guarantees on borrowing of under £250,000, nor can primary residential property be taken as security under the scheme. When a personal guarantee is required, it is capped at 20% of the outstanding value of the loan. As at 15 April, the CBILS had provided £1.1 billion of loans to just over 6,000 businesses. Applications received had reached nearly 28,500, although inquiries had exceeded 300,000.

NEW

Support package for innovative firms

On 20 April the Chancellor announced a two-part support package for ‘innovative firms’, which means mainly start-ups and other venture capital backed business that would be unable to raise CBLIS or CLBILS finance.

  • The Future Fund will launch in May and be delivered with the British Business Bank. The fund will provide loans between £125,000 and £5 million, with private investors at least matching the government commitment. These loans will automatically convert into equity on the company’s next qualifying funding round, or at the end of the loan if they are not repaid.

 To be eligible, a business must be an unlisted, UK registered and UK based company that has previously raised at least £250,000 in equity investment from third party investors in the last five years. To begin with the government is committing £250 million to the scheme. It will initially be open until the end of September, with its scale kept under review.

  • Targeted Support for Research and Development (R&D) £750 million of targeted support for the most R&D intensive small and medium size firms will be made available through a grants and loan scheme operated by Innovate UK, the national innovation agency.
  • Innovate UK will accelerate up to £200 million of grant and loan payments for its 2,500 existing customers on an opt-in basis. An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments will be made by mid-May.

 Deferral of VAT and Income Tax Payments  

For the period between 20 March 2020 and 30 June 2020, businesses will not be required to make a VAT payment. Instead they will be able to defer this payment until the end of the 2020/21. VAT refunds and reclaims will be paid by the government as normal. No applications will be required as the process will be automatic.

Self assessment income tax payments due on the 31 July 2020 (the second payment on account for 2019/20) will be deferred until the 31 January 2021. This also will not require an application and is not limited to just the self-employed, although the Treasury says “If you are still able to pay your second payment on account on 31 July you should do so”. Penalties and interest for late payment will not be charged in the deferral period.

Business Rates Retail Discount 

All shops, cinemas, restaurants, music venues and business operating in the leisure and hospitality sectors will have no business rates to pay in 2020/21.

Grant Funding Schemes

There are two grant schemes based on rateable values:

  • Small Business Grant Fund All eligible businesses in England in receipt of either Small Business Rates Relief (SBRR) or Rural Rates Relief (RRR) in the business rates system will be eligible for a payment of £10,000.
  • Retail, Hospitality and Leisure Grant Eligibility All eligible businesses in England in receipt of the Expanded Retail Discount (which covers retail, hospitality and leisure) with a rateable value of up to than £15,000 will be eligible for a cash grants of £10,000 per property and those with a rateable value of more than £15,000 but less than £51,000 will be eligible for a cash grant of £25,000 per property.

Nursery businesses that pay business rates

For nursery school businesses based in England, there will be a business rates holiday for 2020/21. The nursery property must be:

  • occupied by providers on Ofsted’s Early Years Register
  • wholly or mainly used for the provision of the Early Years Foundation Stage.

 Commercial insurance

The question of the extent to which any insurance policy provides cover for the Covid-19 outbreak has proved contentious. Pandemic cover is not a feature of most business disruption cover, a point underlined by the Association of British Insurers (ABI) in a statement it issued on 17 March. The ABI has since launched an information hub dealing with the impact of the virus on a range of insurance policies, from trade credit to private health.

NEW

On 15 April the Financial Conduct Authority (FCA) issued a ‘Dear CEO’ letter to insurers, setting out its expectations of regulated firms and a reminder that for some SMEs, complaints will fall within the remit of the Financial Ombudsman Service.

Off-payroll working in the private sector (IR35)

On 17 March, the Chief Secretary to the Treasury, Steve Barker, said in a statement to the House of Commons that the start date for the new IR35 tax rules would be deferred to
6 April 2021.

Time to Pay (TTP)

In the Budget, the Chancellor announced that HMRC would scale up its Time to Pay service, giving businesses and the self-employed the chance to defer tax payments.

Protection from property forfeiture

Commercial tenants who cannot pay their rent because of COVID-19 are protected from forfeiture of their business property if they miss a payment up until 30 June 2020. Reports suggest that only 40% of the commercial property rents due on Lady Day (25 March) were paid on time.

Going concern

The Financial Reporting Council (FRC) has issued financial guidance in conjunction with the Financial Conduct Authority (FCA) and Prudential Regulatory Authority. This includes extensive information for auditors covering areas such as how to deal the question of whether a business is a going concern.

Wrongful Trading and business restructuring

On 28 March the UK Business secretary announced changes to insolvency law “to enable UK companies undergoing a rescue or restructure process to continue trading, giving them breathing space that could help them avoid insolvency”.

The wrongful trading law is being temporarily suspended, retrospective from 1 March 2020. for three months. This gives company directors the ability to keep their businesses in being without risking personal liability.

Scotland, Wales and Northern Ireland

Some elements of business support are devolved:

  • Guidance for Scotland is here
  • Guidance for Wales is here
  • Guidance for Northern Ireland is here

Government guidance for employers and businesses is here.

Measures for individuals

Mortgage holidays

For people who find themselves in financial difficulties because of coronavirus, mortgage lenders will offer at least a three-month mortgage holiday. This holiday extends to buy-to-let landlords.

NEW

Personal loans, credit cards and overdrafts

The FCA announced temporary measures, effective from 14 April, which expect firms providing consumer finance to:

  • Offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by Covid-19.
  • Allow customers who are negatively impacted by Covid-19 and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months.
  • Make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force.
  • Ensure consumers using any of these temporary payment freeze measures will not have their credit file affected.

FCA consumer guidance is available here.

Protection from eviction

Private and social landlords will not be able to start proceedings to evict tenants for the period to 30 September 2020.

Statutory sick pay (SSP)

SSP is currently paid at the rate of £95.85 a week. It is now available to employees from day one, instead of day four, for those who are suffering from the virus or who have been advised to self-isolate. There has been no change in the minimum earnings threshold for SSP (£120 a week in 2020/21).

Individuals ineligible for SSP

Self-employed and gig economy workers generally do not qualify for SSP. Instead they may be entitled to Contributory Employment and Support Allowance.

Covid-19 sufferers and self-isolators will be able to claim the benefit from day one instead of day eight. The Minimum Income Floor in Universal Credit (UC) has been temporarily removed to ensure that time off work because of sickness is reflected in benefits.

For 12 months from 6 April 2020, the standard allowance in Universal Credit (UC) and the basic element in Working Tax Credit (WTC) for will be increased by the equivalent of about £20 a week over and above annual uprating (which were to £323.22 per month for UC for age 25 and over and £1,995 a year for WTC for 2020/21). This effectively brings UC into line with the rate of SSP. The change applies to all new and existing UC claimants and to existing WTC claimants.

Housing benefit

Housing benefit and the housing element of UC will be increased so that the Local Housing Allowance will cover at least 30% of market rents.

Hardship Fund

The Chancellor announced in the Budget a £500 million Hardship Fund, which would be distributed to Local Authorities so that they could support the vulnerable.

NEW

Motor finance and high cost credit

On 17 April the FCA issued draft guidance on how companies providing motor finance and ‘high cost finance’ (for example, payday loans and pawnbroking) should treat customers. The main proposal is a three-month payment freeze, other than for high cost credit, which would be subject to a one month interest-free payment freeze. The FCA expects to finalise proposals by Friday 24 April 2020, which would come into force shortly afterwards.

Government guidance for employees is here.

Government guidance on claiming benefits is here.

Main provisions for the self-employed

On Thursday 26 March, Chancellor Rishi Sunak made his long-awaited statement about the Covid-19 government support scheme for the self-employed, called the Self-employment Income Support Scheme (SEISS). Reports suggest that the announcement had been slow to arrive because of the greater difficulty in structuring and running a scheme that relied on annual information (via tax returns) and could not operate via the PAYE system.

SEISS provisions

The SEISS will pay a directly payable taxable grant to the self-employed (including members of partnerships) based on 80% of profits averaged over the last three tax years (or shorter periods if self-employment started after 2016/17), subject to a maximum of £2,500 a month.

  • The initial payment term of the SEISS grant will be “at least three months”.
  • The payment of the grant will not prevent the claimant from continuing to work.

 

UPDATED

Restrictions on the SEISS

The SEISS will be restricted in five ways:

  1. Self-employment must provide the majority of the claimant’s income (based on the period used for the £50,000 test set out below).
  2. Trading profits either:
  • were no more than £50,000 in 2018/19; or
  • trading profit were no more than £50,000 averaged over the three tax years from 2016/17. If trading started between 2016-19, HMRC will only use those years for which a Self-Assessment tax return has been filed.

According to the Chancellor, these thresholds mean the scheme covers 95% of the self-employed. The corollary is that it creates a cliff edge at £50,000, a figure that appears elsewhere in the tax system (e.g. the higher rate tax threshold).

  1. The claimant must have submitted a 2019 tax return (covering the 2018/19 tax year). As a concession, any later filer will have four weeks to submit their overdue return if they wish to be included in the scheme.
  2. The claimant must have traded in 2019/20 and still be trading when making the application (unless affected by Covid-19)
  3. The claimant must have lost trading profits due to Covid-19.

HMRC will use their existing information to assess eligibility and contact individuals directly, requesting completion of “a simple online form”. A gov.uk webpage gives more details, but is somewhat confusingly headed “Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme”. The “don’t call us, we’ll call you” approach is aimed at preventing HMRC being overwhelmed with telephone queries, as has happened with the DWP’s Universal Credit system. HMRC are aiming to contact eligible people “by mid May 2020”.

Timing of payments

Payments from HMRC should start at the beginning of June. The initial sum will represent three months’ cumulative payments. Until then the self-employed can claim Universal Credit. In his statement the Chancellor said Universal Credit could give a self-employed person with a non-working partner and two children, living in the social rented sector, support of up to £1,800 a month.

Anyone whose self-employment started after 5 April 2019 and thus has no self-employed earnings recorded with HMRC cannot benefit from the scheme and must rely on Universal Credit.

One-person companies

Those who operate through one person companies are not covered by the scheme as, despite the media label often given to them, they are not self-employed. The Treasury press release states that such people “will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes”. The use of the word ‘salary’ is key here, as many one person companies route the bulk of their employee’s remuneration via dividends to reduce National Insurance liabilities (see CJRS above).

In his closing remarks the Chancellor noted that “…in devising this scheme … it is now much harder to justify the inconsistent contributions between people of different employment statuses”. This was a subtle way of suggesting that National Insurance contributions will have to rise for the self-employed once the crisis is over.

UPDATED

Recent reports have suggested that the Small Business Minister is lobbying for a change on the approach to dividends, but meeting Treasury resistance. One potential problem appears to be that HMRC cannot easily distinguish between ‘remuneration’ dividends and dividends originating from normal investment.

Coronavirus Act

The day before the Chancellor’s latest statement, the Coronavirus Act 2020 received Royal Assent. This 348-page Act deals with a broad range of Covid-19 related measures (many of which exclude Scotland because of its devolved powers), including:

  • Food supply.
  • Statutory Sick Pay (SSP) modifications, e.g. funding of the employer’s liabilities.
  • Suspension of the complex abatement rules that either reduce or suspend NHS pensions on an individual’s return to work.
  • Uprating of working tax credit.
  • Protection from eviction for residential tenancies to 30 September 2020.
  • Protection from forfeiture for commercial tenancies to 30 June 2020.

The explanatory notes for the original Bill (introduced on 19 March) are here.

Updated government Covid-19 guidance on business support is here and for employees is here.

 

Image courtesy of WooWork.com, Flickr

Covid-19 measures: to 3 April 2020 (updated)

Covid-19 measures: to 3 April 2020

The 11 March Budget from the Chancellor, Rishi Sunak, included £7 billion of expenditure targeting the impact of Covid-19 on employees, the self-employed and businesses. On 17 March a further raft of measures was announced, amounting to an additional £20 billion of support expenditure plus £330 billion of loan guarantees.

By 20 March another round of support was announced of such size that no price tag was attached. On 26 March the much-awaited package for the self-employed was announced. There has since been a steady trickle of clarifications and fresh announcements from the Treasury and other parts of the government.

We have pulled together a round-up of the various announcements so far for businesses and individuals including useful links to government sites and added new details where released including announcements through 3 April.

Measures for business

Coronavirus Job Retention Scheme (CJRS)

Some form of job support scheme had been expected after the 17 March announcement and the CJRS is similar to schemes that have already been set up elsewhere in Europe. Under the CJRS, “HMRC will reimburse 80% of a furloughed worker’s wage costs, up to a cap of £2,500 per month’, provided the worker was on the employer’s PAYE payroll on
28 February 2020.

In this context ‘furloughed workers’ are non-working employees (including part timers and employees on agency, flexible or zero hours contracts) who are kept on the payroll, rather than being laid off. The employer has to designate these employees and submit relevant information to HMRC via a “new online portal”. The HMRC payments will cover 80% of “usual monthly wages” plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

The CRJS is available to one person companies whose director/owner furloughs themselves. However, only salary is covered, not dividends, and like all other furloughed workers, the director “cannot undertake work for or on behalf of the organisation”. According to press reports the Treasury nevertheless accepts that the director may continue with their statutory obligations in that role.

Statutory sick pay (SSP)

Businesses with fewer than 250 employees as at 28 February 2020 will be refunded the full cost of providing SSP to any employee off work for up to 14 days because of coronavirus.

Loan guarantees

A government-backed loan guarantee scheme announced in the Budget has since been regularly extended and enhanced. The Government will now provide loan guarantees up to “an initial” £330 billion for all sizes of businesses. In all instances businesses remain responsible for repaying any facility they may takeout – any guarantees are for the lender:

  • For large firms (with more than £4 5million turnover), the Bank of England has launched a Covid Corporate Financing Facility (CCFF), which “will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy”. The company must satisfy Bank of England lending criteria, which originally meant having an investment grade credit rating from a ratings agency but has since been changed to also allow lending banks to judge credit worthiness. However, the ultimate decision remains with the Bank of England. As at 3 April, about £3.5 billion had either been provided or committed.
  •  For medium sized businesses (turnover between £45 million and £500 million)  On 3 April the Chancellor announced the Coronavirus Large Business Interruption Loan Scheme (CLBILS). The scheme is due to launch later in April and will fill a finance gap that had emerged between the two existing loan support schemes. The CLBILS will have a loan ceiling of £25 million and is targeted at businesses that are too large for the CBILS (see below) but fail to meet the criteria for the CCFF. The new scheme will provide a government guarantee of 80% on individual loans and other forms of finance (e.g. overdrafts) for businesses.

The aim is to provide support for businesses that were viable before the Covid-19 pandemic but now face significant cash flow difficulties that would otherwise make their business unviable in the short term. Lenders will be expected to conduct their usual credit risk checks and charge commercial rates of interest.

  • For small and medium sized businesses (turnover up to £45m) The loan limit on the Coronavirus Business Interruption Loan Scheme (CBILS) is now £5 million, with no interest charged for the first twelve months and lender-levied fees will be covered. The scheme is delivered through 40 accredited commercial lenders, backed by the British Business Bank. Eligible SMEs must be UK-based and meet “the other British Business Bank eligibility criteria”. The government has made clear that this now means the CBILS is available to all SME businesses affected by Covid-19 and not just those unable to secure regular commercial financing elsewhere.  Lenders cannot require personal guarantees on borrowing of under £250,000, nor can primary residential property be taken as security under the scheme. When a personal guarantee is required, it is capped at 20% of the outstanding value of the loan.  As at 3 April, the CBILS had provided £90 million of loans to nearly 1,000 businesses.

Deferral of VAT and Income Tax Payments  

For the period between 20 March 2020 and 30 June 2020, businesses will not be required to make a VAT payment. Instead they will be able to defer this payment until the end of the 2020/21. VAT refunds and reclaims will be paid by the government as normal. No applications will be required as the process will be automatic.

Self assessment income tax payments due on the 31 July 2020 (the second payment on account for 2019/20) will be deferred until the 31 January 2021. This also will not require an application and is not limited to just the self-employed, although the Treasury says “If you are still able to pay your second payment on account on 31 July you should do so”. Penalties and interest for late payment will not be charged in the deferral period.

Business Rates Retail Discount 

All shops, cinemas, restaurants, music venues and business operating in the leisure and hospitality sectors will have no business rates to pay in 2020/21.

On 17 March the Chancellor also promised an additional cash grant of “up to £25,000 per business” to businesses with a rateable value of less than £51,000 – i.e. those that would have benefited from the old version of the Business Rates Retail Discount Scheme.

Businesses already eligible for small business rates relief (SBBR)

There will a flat £10,000 cash grant for each business based in England that already benefits from zero or reduced business rates because of small business rate relief.

Nursery businesses that pay business rates

For nursey school businesses based in England, there will be a business rates holiday for 2020/21. The nursery property must be:

  • occupied by providers on Ofsted’s Early Years Register
  • wholly or mainly used for the provision of the Early Years Foundation Stage.

 

Commercial insurance

The question of the extent to which any insurance policy provides cover for the Covid-19 outbreak has proved contentious. Pandemic cover is not a feature of most business disruption cover, a point underlined by the Association of British Insurers (ABI) in a statement it issued on 17 March. The ABI has since launched an information hub dealing with the impact of the virus on a range of insurance policies, from trade credit to private health.  

Off-payroll working in the private sector (IR35)

On 17 March, the Chief Secretary to the Treasury, Steve Barker, said in a statement to the House of Commons that the start date for the new IR35 tax rules would be deferred to
6 April 2021.

Time to Pay (TTP)

In the Budget, the Chancellor announced that HMRC would scale up its Time To Pay service, giving businesses and the self-employed the chance to defer tax payments.

Protection from property forfeiture

Commercial tenants who cannot pay their rent because of COVID-19 are protected from forfeiture of their business property if they miss a payment up until 30 June 2020.

Going concern

The Financial Reporting Council (FRC) has issued financial guidance in conjunction with the Financial Conduct Authority (FCA) and Prudential Regulatory Authority. This includes extensive information for auditors covering areas such as how to deal the question of whether a business is a going concern.

Wrongful Trading and business restructuring

On 28 March the UK Business secretary announced changes to insolvency law “to enable UK companies undergoing a rescue or restructure process to continue trading, giving them breathing space that could help them avoid insolvency”.

The wrongful trading law is being temporarily suspended, retrospective from 1 March 2020. for three months. This gives company directors the ability to keep their businesses in being without risking personal liability.

Scotland, Wales and Northern Ireland

Some elements of business support are devolved:

  • Guidance for Scotland is here
  • Guidance for Wales is here
  • Guidance for Northern Ireland is here

Government guidance for employers and businesses is here and business support details are here.

Measures for individuals

Mortgage holidays

For people who find themselves in financial difficulties because of coronavirus, mortgage lenders will offer at least a three-month mortgage holiday. This holiday extends to buy-to-let landlords.

Protection from eviction

Private and social landlords will not be able to start proceedings to evict tenants for the period to 30 September 2020.

Statutory sick pay (SSP)

SSP is currently paid at the rate of £ £95.85 a week. It is now available to employees from day one, instead of day four, for those who are suffering from the virus or who have been advised to self-isolate. There has been no change in the minimum earnings threshold for SSP (£120 a week in 2020/21).

Individuals ineligible for SSP

Self-employed and gig economy workers generally do not qualify for SSP. Instead they may be entitled to Contributory Employment and Support Allowance.

Covid-19 sufferers and self-isolators will be able to claim the benefit from day one instead of day eight. The Minimum Income Floor in Universal Credit (UC) has been temporarily removed to ensure that time off work because of sickness is reflected in benefits.

For 12 months from 6 April 2020, the standard allowance in Universal Credit (UC) and the basic element in Working Tax Credit (WTC) for will be increased by the equivalent of about £20 a week over and above annual uprating (which were to £323.22 per month for UC for age 25 and over and £1,995 a year for WTC for 2020/21). This effectively brings UC into line with the rate of SSP. The change applies to all new and existing UC claimants and to existing WTC claimants.

Housing benefit

Housing benefit and the housing element of UC will be increased so that the Local Housing Allowance will cover at least 30% of market rents.

Hardship Fund

The Chancellor announced in the Budget a £500 million Hardship Fund, which would be distributed to Local Authorities so that they could support the vulnerable.

Government guidance for employees is here.

Government guidance on claiming benefits is here.

Main provisions for the self-employed

On Thursday 26 March, Chancellor Rishi Sunak made his long-awaited statement about the Covid-19 government support scheme for the self-employed, called the Self-employment Income Support Scheme (SEISS). Reports suggest that the announcement had been slow to arrive because of the greater difficulty in structuring and running a scheme that relied on annual information (via tax returns) and could not operate via the PAYE system.

SEISS provisions

The SEISS will pay a directly payable taxable grant to the self-employed (including members of partnerships) based on 80% of profits averaged over the last three tax years (or shorter periods if self-employment started after 2016/17), subject to a maximum of £2,500 a month.

  • The initial payment term of the SEISS grant will be “at least three months”.
  • The payment of the grant will not prevent the claimant from continuing to work.

Restrictions on the SEISS

The SEISS will be restricted in three ways:

1.Self-employment must provide the majority of the claimant’s income (based on the period used for the £50,000 test set out below)

2.Trading profits either:
  • were less than £50,000 in 2018/19; or
  • trading profit were less than £50,000 averaged over the three tax years from 2016/17. If trading started between 2016-19, HMRC will only use those years for which a Self-Assessment tax return has been filed.

According to the Chancellor, these thresholds mean the scheme covers 95% of the self-employed. The corollary is that it creates a cliff edge at £50,000, a figure that appears elsewhere in the tax system (e.g. the higher rate tax threshold).

3.The claimant must have submitted a 2019 tax return (covering the 2018/19 tax year). As a concession, any later filer will have four weeks to submit their overdue return if they wish to be included in the scheme.

HMRC will use their existing information to assess eligibility and contact individuals directly, requesting completion of “a simple online form”. A gov.uk webpage gives more details, but is somewhat confusingly headed “Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme”. The “don’t call us, we’ll call you” approach is aimed at preventing HMRC being overwhelmed with telephone queries, as has happened with the DWP’s Universal Credit system.

Timing of payments

Payments from HMRC should start at the beginning of June. The initial sum will represent three months’ cumulative payments. Until then the self-employed can claim Universal Credit. In his statement the Chancellor said Universal Credit could give a self-employed person with a non-working partner and two children, living in the social rented sector, support of up to £1,800 a month.

Anyone whose self-employment started after 5 April 2019 and thus has no self-employed earnings recorded with HMRC cannot benefit from the scheme and must rely on Universal Credit.

One-person companies

Those who operate through one person companies are not covered by the scheme as, despite the media label often given to them, they are not self-employed. The Treasury press release states that such people “will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes”. The use of the word ‘salary’ is key here, as many one person companies route the bulk of their employee’s remuneration via dividends to reduce National Insurance liabilities (see CJRS above).

In his closing remarks the Chancellor noted that “…in devising this scheme … it is now much harder to justify the inconsistent contributions between people of different employment statuses”. This was a subtle way of suggesting that National Insurance contributions will have to rise for the self-employed once the crisis is over.

Coronavirus Act

The day before the Chancellor’s latest statement, the Coronavirus Act 2020 received Royal Assent. This 348-page Act deals with a broad range of Covid-19 related measures (many of which exclude Scotland because of its devolved powers), including:

  • Food supply.
  • Statutory Sick Pay (SSP) modifications, e.g. funding of the employer’s liabilities.
  • Suspension of the complex abatement rules that either reduce or suspend NHS pensions on an individual’s return to work.
  • Uprating of working tax credit.
  • Protection from eviction for residential tenancies to 30 September 2020.
  • Protection from forfeiture for commercial tenancies to 30 June 2020.

The explanatory notes for the original Bill (introduced on 19 March ) are here.

Updated government Covid-19 guidance on business support is here and for employees is here.

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